Just a couple of days before another crucial Eurogroup meeting on Greece, the Managing Director of the International Monetary Fund, Christine Lagarde sent a letter to all 19 eurozone finance ministers asking them to begin talks on Greek Debt Relief “immediately, or risk losing IMF participation on the Greek program.
In the letter sent on Thursday night, Lagarde expresses for one more the the IMF’s point of view that the target of 3.5% Primary Surplus in 2018 was not only impossible to reach but also “counterproductive.”
“Let there be no doubt that meeting this higher target would not only be very difficult to reach, but possibly counterproductive,” Lagarde wrote. “We do not believe that it will be possible to reach a 3.5 per cent of GDP primary surplus by relying on hiking already high taxes levied on a narrow base, cutting excessively discretionary spending, and counting one-off measures as has been proposed in recent weeks.”
“We believe that specific [economic reform] measures, debt restructuring, and financing must now be discussed contemporaneously,” she wrote. “For us to support Greece with a new IMF arrangement, it is essential that the financing and debt relief from Greece’s European partners are based on fiscal targets that are realistic because they are supported by credible measures to reach them.”
Admitting that talks about the €3.6 billion “contingency austerity measures” have become fruitless, Lagarde wrote that Athens’ counterproposal — a mechanism that would trigger across-the-board cuts — was unworkable, implying that discussions surrounding the contingency measures should be dropped.
“Unfortunately, the contingency mechanism that Greece is proposing does not include [specific economic] reforms,” she wrote. “Based on past performance, such ad hoc measures are not very credible, but they are also undesirable as they add to uncertainty and fail to resolve the underlying imbalances.”
Lagarde’s letter was obtained by Financial Times and more details you can read here.
PS I have no idea, how the German Finance Minister reacted to the letter but rumors claim that he recently cancelled his internet/e-mail subscription, unplugged his landline and removed the battery from his mobile. For the simple reason, that Wolfgang Schaeuble loves the IMF’s 3.6 billion euro contingency measures and would be delighted to see Greeks vote today for each one of them, but he is deaf when it comes to Deaf Relief.